The cost of sending transactions over Ethereum has skyrocketed in the past few months as the network hit an all-time high in both transaction capacity and demand due to DeFi growth.

According to GasNow , the cost of gas (how transaction fees are calculated) has reached around Gwei 700. That is 7,000 percent more than at the beginning of the year, when Ethereum was hardly overloaded and DeFi has not yet played such a big role.

At this point, it is not possible for retail investors with hundreds of dollars, or perhaps even a little more than that, to make regular transactions over the Ethereum network.

Here the price for simple transactions on Ethereum at 700 Gwei:

$ 7 to send ETH from wallet to wallet
$ 15 for sending ERC-20 coins
$ 60 for trading a coin on Uniswap
$ 120 for depositing stablecoins in the vaults.

Of course, this is not acceptable for most users. But there are solutions along the way.

High transaction fees with Ethereum – not a permanent problem

Vitalik Buterin, founder of Ethereum, wrote about high transaction fees in an extensive Twitter thread from September 1st.

The first thing he notes is that increasing the block size of Ethereum is not a short-term solution due to the security risks involved in block propagation and the effectiveness of the nodes:

“However, it is difficult to safely increase the capacity. The Ethereum nodes have already reached their limits and there is always a risk of DoS attacks, which are processed much more slowly than normal blocks, which slows the chain down to crawl. Higher gas limits would make this even worse. “

One short-term solution that Buterin believes is feasible at the moment is a new Etherum improvement proposal – number 2929 – that would „increase the gas costs of some particularly sensitive operations, which would make it safer to increase the gas limits“. This is only a short-term fix, which he believes could cut transaction costs by about 25 percent.

A medium-term solution that he has in mind are the so-called technology „rollups“, which are basically the equivalent of Ethereum to the Lightning Network for Bitcoin.

„In a roll-up ecosystem, gas charges in the chain would stay the same, and 465 Gwei might even become the norm, but most transactions would take place within roll-ups, where the charges actually paid by users would be hundreds of times lower.“

And in the long term, the introduction of sharding with ETH2 should increase the capacity of „the base layer by 100 times“, which should lower the fees by dozens of percent.

“The only solution for high tx fees is scaling. Tether, Gitcoin, and other apps are doing the right thing by migrating to ZK rollups today. I’m looking forward to the optimistic rollups that will appear soon, which will generalize the rollup scaling to full EVM contracts. “

High fees harm DeFi

Extreme gas charges due to network congestion pose a security threat to Ethereum and DeFi.

In March, when the crypto market surrendered, the MakerDAO ecosystem became critically undercollateralized due to the way credit positions were mistakenly liquidated, leading to fears that DeFi could collapse.

Categories: Bitcoin

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